Outsourcing is a process of contracting with an organization or a person to do a particular function. In outsourcing, an organization or a person who offers their services is referred to as a vendor and an organization or a person who takes services of the vendor is referred to as a client. When the client outsources some work to the vendor, they agree to an agreement that reflects the expectation of both, the vendor and the client. Such agreement between the vendor and the client is generally referred to as an outsourcing engagement.
Outsourcing includes domestic contracting and foreign contracting. In domestic contracting, the vendor and the client are from same country and in foreign contracting, the vendor and the client are from different countries. Generally, the client outsources his non-core business to focus on business perceived core to the vendors. For example, a software development company may want to focus only on development business and may outsource service or maintenance of software to a vendor. Further, the client may also outsource his work to a vendor located in a different country in order to save money. For example, production cost of equipments may be less in some countries because of cheap labor and weak currency. In such cases, a client may outsource production of the equipments to such countries.
Due to many underlying advantages, outsourcing has become a trend in many organizations, and especially in information technology (IT) organizations, service industries, logistic, and supply chain industries. With increasing demand of outsourcing, many vendors are now available to the client. The client can choose a vendor of his choice, who meets his requirements. For example, there may be ten vendors who provide technical support services to clients. Then it may get difficult for the client to choose right vendor for his work. Also, there are so many factors, such as vendor leverage, number of employees and competencies of employees at vendor's site are involved in the outsourcing engagements, which make the decision of choosing the right vendor complex.